Howdy?!

Man, its been a while since I wrote on this blog. I've been very busy with all the office work, and all that some some. Unpredictably, the US crisis has struck the world financial market severly. Dowjones now remains at 8000 level, fed fund rate has droped to 0.1% (lowest ever?), jobless claim has gone up, GM, daimlerchrysler, subaru, what not is on their way to job cut. And what happened in Indonesia? Rupiah touched 13000 level, and JCI touch 1100 level. Dear God!.. what has america done to the world? What's more interesting is what's going on with Bernard Madoff!? NOw everyone knows that with his case, the Financial Market needs to be highly regulated. Thank God that our ideas to freeing the financial market, especially the FX market, is no longer seen. Stiglitz is right at the first place! Financial market is highly volatile, and it needs to be regulated. The slow rise of the financial market from the current crash is the proof that liberalized market is very vulnarable and shaky. Chinese market where its closed and highly regulated, is one example that remains strong, and stood still.
Talk again later

what's new on recent crisis

there are couple of things to note on recent crisis. 1. it's america's fault
2. it makes everyone suffer, although not as hard as that of in 98.
3. there are no significant policy to cope with it.

lets discuss this later on.

Obama Wins..

Wew.. its been a while since I wrote on this wall. New stuff comming in: Obama wins!.. he wins 338-155. my oh my...Hope that he will be able to turn the economy around. Because if the crisis remains, then it will be heavy for me to set up any regulations involved. sigh.. i hate it..
Good luck, Obama! Rough way ahead.

True crisis

Lord have mercy... Dow Jones has dropped 3 days in a row, and ended up at 8500 yesterday. I haven't checked tonight, because its still trading. I think its around 8300-8400. moving sideways. JCI has also been suspended for 2 and a half days, due to down by more than 10% for 2 days in a row. I cannot believe that such US crisis has brought INdonesia down for the second time. I heard today that Rupiah was traded around 10.000 per US$. The interest rate (BI Rate) has been brought up by BI to 9.5%, while 6 other central banks has brought down their interest rate. The interest rate spread has not been able to help the weakening of Rupiah.

The main question is: Will this crisis bring INdonesia down to another economic crisis. IMHO, not necessarily. Indonesian fundamentals now is better than that of in 1998. Banking conditions are much better, and much more regulated. No panic and rush outside the exchange. They are highly supervised. The amount of offshore loan, government's and private's are much less than that of in 1998, and the tenor profile is longer (to my knowledge). The only panic people are investors who put their money in the Stock exchange, who mostly are foreign investors. According to KSEI, the market share for Foreign investors in BEI is up to $70 billion, $20 billion more than our forex reserves. No wonder the IHSG down by 10% for two days in a row...

Blog again later...

Happy Idul Fitri 1429 h

I would like to take this opportunity to wish you all: Happy Idul fitri 1429 h. Taqobalallohu mina wa minkum. May Allah bless us all. especially with the current US financial crisis. with the fail of $700 billion bail out proposal, dow jones received a tremendous pressure, and down by 7% one day before the lebaran, n have not Returned to its previous level above 11000. let's hope that idx won't receice the same pressure when open this monday.
oiya, regards to pak panji, dealer of Bank Mandiri. I watched you @ tvone last tuesday . nice analysis ;)

Recent Crisis

Wall Street is shaking. After Fannie Mae and Freddie Mac, On September 17, 2008 Lehman Brothers has filed Chapter 11. Bank of America, the one who wanted to buy Lehman Bro. has switched their interest and buy Merril Lynch instead. An investment bank with 158 years of history went bankcrupt because of subprime case. And the crisis keep marching. AIG is also in trouble. And because of its possible systemic cause, the US government bail it out for $85 billion. Much bigger than Indonesian forex reserves. On 19th of Sept 2008, The Fed and US Treasury has proposed a comprehensive way out of this crisis with the cost of about $700 billion to buy all assets that is necessary, incl. mortgages and mortgages linked securities with high risk and problems. Because of this, Dow JOnes bounce back from 10,000 level to 11,000 level on Friday, 19 Sept 08. On the other hand, this $700 billion bail out will cause US Deficit to increase to $11.3 trilion, and this issue has caused Dow Jones falling back 300 points... Investors are flying to quality, and T-Bills has been over demand, and the yield has gone negative... amazing...

Itf vs Exchange Rate continue

Lets continue the discussion on where is exchange rate in an itf arrangement. Just read a couple of papers on itf and possible use of exchange rate in the framework. In Israel, one research mention that the two have different characteristic, and the application of both will only bring conflicts. in mexico, itf will only work if the er. regime is free floated. and read another paper that in uk experience, er. will only significantly effecting the inflation only through output gap. meanwhile, direct pass-through is weak.

As I mentioned in my past blog, that's not the case within Indonesia. but on the second thought, is it? the amount of effort of the central bank in limiting the inflation is huge this year, but still the inf. rate is predicted tobe 2 digits. it simply means that er. has a weak impact on inf. and simply because indonesian inflation is majority caused, in my opinion, by cost push! oil price man! what else ...

lets leave it that way...

What A Week!!

Alhamdulillah.. I have so much gifts from God, so that I have been given so much "tasks" By Thee this week...
At first, My nephew was hospitalized due to typus. Then my second nephew, then My son, and it doesn't stop because then same thing happen to my daughter. Then my nephew is back to hospital because of virus. And Now my second daughter is having a fever because of me... my oh my... Astagfirullahal adziim if I ever made mistake to you, God, and Alhamdulillah that you have given us a warning to keep praying....

Just an opinion

wew.. another day on the train n its starting to rain again.

lets talk about indirect pass-through of exchange rate to inflation. According to theory on inflation targeting framework, exchange rate is "ignored" by central banks in determining the inflation target. well, that is not what happen in indonesia. exchange rate has somewhat influence on inflation targeting. how significant is the influence? I don't know, but governer's board keep mentioning level of rupiah in the newspaper. in my opinion, the effect is quite strong, since indonesian imports is almost as high as its Non oil n gas export. And I Believe, the higher the imports, the higher significancy of er to influence inflation. that's all for now folks...

on train

On train.
I just at a glance about predicting volatility on fx market. Don't quiet understand, but they compare implied vols using black scholes model with future vols for the remaining life of the options using isd. One of the conclussions is that its almost similar. What this means to me? Vols can be predicted. It simply that.

But can that be applied for rupiah? Rupiah's vols mainly caused By sentiments and fundamentals. And according to some research, offshore players play some important roles on determining rupiah level.

blog again later.

aaah.. Bandung

It's not that I'm sentimental, but whenever I heard a slow and easy listening music, such as Roxann by Jay Graydon, or Lea by Toto, or what not, I always remember Bandung, the city where I was born, the city I took my bachelor, the city I love. The mahagony trees stands between the streets, Aceh Street, Dipatiukur, Diponegoro, Cisangkuy, Gedung Sate, Cimandiri, aah... I miss Bandung so much. It's like... home.. that's exactly the word! H O M E...
I remembered walking home to jalan Aceh after school at dipatiukur and listen to these songs... the music, the atmosphere, the breeze, everything struck me.. and will always have a place in my heart.. bandung...

Always remember the good old days where Mas Bambang and Eyang aceh are still around, having lebaran there. For me, the atmosphere is still and will always be there. Still remember how I play tennis with Mas Bambang in front of the house at siliwangi, went to ITB to play tennis with him, or buy shoes for himself. hmmm.. it's been almost 20 years and the memory is still there...

FX Swaps @ Aussie

Just attend a workshop on Portfolio Management by RBA in my office. They touch a little bit on FX swaps as the liquidity management tools for domestic market operation. They said that there will be no impact on the FX market, and only interest rate market will be effected. Really??
Well, one thing is true that FX swap is a money market instrument, not a fx market instrument. You buy (in this case you borrow) a particular currency, in an exchange of selling (lending) other currency, and at the time of maturity, you will get the same amount, at the same level.
They said that $10 billion worth of FX Swap will not move the FX market, and they've done that. Wow.. how deep is the market? I have to check it. But What I am sure is that won't be the case with Indonesia. Buying (borrowing) or selling (lending) rupiah means increasing supply and demand, and increasing turnover. With $3 billion per day worth of FX transaction in Indonesia, I think FX Swap will certainly move the market.
Will come back to you on that...

FX Market and Economic Growth

Afternoon! Just having my first day of fasting.. Boy I'm sleepy.

Oyeah, I won best net overall of golf yesterday, played 81 with handicap 25, I played net 56. hua ha ha... has any pro player played 56 ? only amateur can do it.. he he he..

Back to FX Market.
Read a couple of articles on Financial depth and economic growth, and they say the relationship is quiet (or quite?) strong. Means, the deeper the financial market, the higher the economic growth.

Sholat dulu ah... be back later..

Hi..
Mohsin Khan and Abdelhak Senhadji in their paper Financial Development and Economic Growth: An Overview, DEc. 2000, mention that "The results in this paper confirm the strong positive and statistically significant relationship between financial depth and growth in the cross section analysis."
What can be inferred from this sentence? As I mentioned earlier, the deeper the financial market, the higher the economic growth. It also means that, the deeper the FX Market, which also part of financial market, the higher the economic growth. How can be the FX Market depth influence the economic growth. Well, I think it simply because of the deeper the FX market means, the higher the volume of FX transactions, the higher the FX supply and demand, reflects the higher market players want to transact (could be to fulfill their FX needs for export/import), means the higher the economy's movement --> means growth.

Therefore, Indonesian FX market must be deep, to reflect the economic growth. What happen in Indonesia right now is that growth is high, but no movement in the fx market... well, what can you say? its Indonesia....

NDF

What is NDF? After googling, I find out that it stands for Non-Deliverable Forward. man.. What is that? It's pretty similar with futures transactions, but OTC. You buy forward, and sell forward, at the settlement date, you net them, and settle the rate spread. Well, isn't life beautiful? It makes hedging transactions easier. In an emerging market like Indonesia, free float regime but highly regulated, NDF's transaction is increasing. People outside Indonesia, who want to invest in onshore market, do hedge their open rupiah position with NDF (source: people in the industry).

Because of it's high demand, NDF even signficantly corelated with USD/IDR in onshore market.

Let's discuss this later... sleepy...

FX Market Again..taken from the street

hmm... traffic jam.. have some thoughts to share...

Domestic forex market is currently shallow because of several reasons:
1. Demand for FX Transactions is thin. According to data, FX Transactions is dominated by banks who transact with other banks. Meanwhile, transactions done by domestic corporates and individuals is relatively small, although some corporates have transacted around $200 mio per day.
2. The FX transactions for hedging purpose are relatively small too, compare to spot market. What can be inferred from this? people are using natural hedge, or worse, people do not hedge. They use spot transactions to fulfill their currency needs, and open their position to market risk.

update again later

More on Domestic FX Market

What is futures contract? Wikipedia said: "a futures contract is a standardized contract, traded on a futures exchange, to buy or sell a certain underlying instrument at a certain date in the future, at a specified price". Well, for me its more of a speculative transactions. Info from BIS that only a small portion of futures contract are delivered (I forgot the exact number), even on FX. So, what can be concluded from that fact? It's speculation. People are buying and selling futures contract, and a few days later the reverse the contract, and settle the margin in domestic currency. Let say USD/IDR is transacted in BBJ or for the sake of argument, CME. What will happen to the spot market? What will happen to the volatility of USD/IDR? Christian Jochum and Laura Kodres' "Does the Introduction of Futures on Emerging Market Currencies Destabilize the Underlying Currencies" Feb 1998 mention that "to a large degree support hypothesis taht the behavior of the spot market is not destabilized by the futures market". Is it?Let's discuss this later. I have to go now...I'm back...In his research in Feb 1998, Mr. Jochum used Mexican Peso, Brazilian Real and Hungarian Forint, where these countries are having manage floating regime. Meanwhile Indonesian RUpiah is Freely floating. Managed FLoating currencies is totally different from free floating. In Managed floating regime, movement of a currency is heavily monitored, and therefore is heavily intervened. They have a cap and floor ban (i thing its around 5% up and below the level). While free floating is only slightly monitored, and is slightly intervened by the central bank. With managed floating, every movement is limited, and therefore there is no significant volatility, and therefore whatever the independent variable are, it will not significantly effect the movement of the managed floating currencies. I think that's what happen in the research. I've gone through the research at a glance, and I don't see any intervention counted in the research.Blog again later...

Domestic FX Market

Hmmm. I don't know about you but my thoughts about domestic forex market is sucks. They're shallow, unpredictable, and very volatile. Well, according to data, it has never been better, even before the financial crisis. Data mentioned that before crisis FX turnover touched $4.5 billion per day (that would be around what.. $1 triliun per year?), and now it is around $3 billion per day (source: BIS 2007). But this is much better than that of just after the crisis, which is only slightly above $0.5 billion (should we say hooray??). Although it gets better, some people say that Indonesia's FX market is fall behind other countries in Asia, including Thailand. Thailand FX market has surged to be around $6 bio per day, and China.. hmm.. china, china... oooh china. It simply amazing to see China's growth and their ability to withold their outstanding economic performance. But if we discuss china here, it would be OOT, so I would ignore China's amazing achievements. China has touched around $15 bio per day in FX Market. And we don't have to mention Singapore, Hong Kong and Japan. They're considered mature. Oyeah I heard today Vietnam's inflation is surging drastically, is it true? I have to check tomorrow's paper...So what happen here? What happen in Jakarta? Just a thought for today. I'll update whenever I have time...